Strong iPod sales to drive NAND growth, Gartner says

SAN FRANCISCO  Strong growth in the market for Apple's iPod and other portable media players is expected to be a significant driver for sales of NAND flash memory in the second half of this year, according to a new report by market research firm Gartner Inc., which is predicting a NAND shortage in the fourth quarter.

Gartner forecasts that the market for all portable media players will reach 187.7 million units, up from 134.5 million in 2005. NAND flash-based players accounted for 80 percent of the market in 2005, according to Gartner (Stamford, Conn.).

Pricing for NAND flash-based players fell on average 25 percent in the first quarter of this year and remained soft during the second quarter, Gartner said, but the firm expects prices for the players to firm up during the second half of the year.

The firm expects Apple to introduce by the fourth quarter a new, high-end NAND flash-based iPod with 10 to 12 gigabytes of storage capacity and a price point of about $250.

"The impact of an iPod with this storage capacity will have significant implications for the NAND flash market," said Jon Erensen, a senior research analyst at Gartner.

Gartner forecasts that a 2-gigabyte NAND flash device will be available in the third quarter for about $30, down from its current price of about $35. Due to Apple's procurement power and investment, it is conceivable that the company could get the same device for $25 or even $20, Gartner said.

Gartner is currently forecasting a 5.8 percent shortage of NAND flash supply in the fourth quarter, persisting into the first quarter of 2007 with a 2.6 percent shortage.

"If a high-capacity NAND-based iPod is introduced, the severity of the allocation will intensify during the fourth quarter of this year, and our outlook of supply and demand for the first quarter of 2007 could become more severe than initially anticipated," said Joseph Unsworth, principal research analyst for Gartner. "Pricing pressure from Apple also puts indirect pressure on competing consumer products, such as flash cards and USB flash drives, which are still the major drivers of the NAND flash market. All of these products compete for consumers' discretionary spending."

The DRAM market has been a direct beneficiary of the strength in the NAND flash market, Gartner said, with massive capacity converted from DRAM to NAND flash in 2005. This synergy between DRAM and NAND technologies has also reduced the volatility of the DRAM cycle, which has been spread across several years and is much less severe, the firm said.

The new Gartner report, titled, "New iPods Will Spur 2H06 Recovery in NAND Flash," is available now on the Gartner Web site.